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spk03: Good day, and welcome to the Rocket Companies Incorporated third quarter 2021 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I'd now like to turn the conference over to Sharon Ng, head of investor relations. Please go ahead.
spk07: Good afternoon, everyone, and thank you for joining us for Rocket Company's earnings call covering the third quarter of 2021. With us this afternoon are Rocket Company's CEO, Jay Farner, our CFO, Julie Booth, and our President and COO, Bob Walters. Before I turn things over to Jay, let me quickly go over our disclaimers. On today's call, we provide you with information regarding our third quarter 2021 performance, as well as our financial outlook. This conference call includes forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and the assumptions we mentioned today. We encourage you to consider the risk factors contained in our SEC filings for a detailed discussion of these risks and uncertainties. We undertake no obligation to update these statements as a result of new information or further events, except as required by law. This call is being broadcast online and is accessible on our IR website. A recording of the call will be available later today. Our commentary today will also include non-GAAP financial measures. Reconciliations between GAAP and non-GAAP metrics for reported results can also be found on our earnings release issued earlier today, as well as our filings with the SEC. And with that, I'll turn things over to Jay Farner to get us started. Jay?
spk02: Good afternoon and welcome to the Rocket Company's earnings call for the third quarter of 2021. Before we dive in, I want to take a moment to thank our Rocket Companies team members, all 26,000 dedicated professionals whose passion drives the client service, innovation, and entrepreneurial spirit that our company is known for. Thanks to them, we have become a platform that removes friction from life's most complex moments. Our platform continues to execute at scale and grow across our businesses. Rocket Mortgage is the largest mortgage lender in America with industry-leading profitability. Our title and settlement services business, Amrock, is also the largest of its kind in the country. Our emerging businesses also set new records in the quarter. Rocket Homes reached $2.3 billion in real estate transaction value, and its current annualized run rate would place the company among the top 20 brokerages in the country. Rocket Auto also reached a record $530 million in gross merchandise value in the quarter. The number of vehicle sales facilitated by Rocket Auto in the last 12 months would put the company in the top 10 of all used car dealers nationwide. On today's call, I will highlight the flexibility of the Rocket platform to capture the growth ahead, including our strategy to revolutionize the home buying experience. I'm also excited to touch on the new mortgage as a service opportunity we're launching in partnership with Salesforce. Last quarter, we had excellent results with closed loan volume and gain on sale margin exceeding the top end of our guidance range. Rocket Mortgage delivered $88 billion in closed loan volume and Rocket Companies generated $3.2 billion in adjusted revenue and $1.6 billion in adjusted EBITDA. On an adjusted EBITDA basis, we doubled the size of our business compared to 2019, again demonstrating the sheer power and scalability of the Rocket platform. We hit new records in both purchase and cash out refi volume in Q3. We've also just recently announced a major partnership with Salesforce. Up to this point in time, we have used Rocket technology to process our own mortgage volume through both our direct-to-consumer and partner network channels. The Salesforce partnership will now open our mortgage technology and process to third-party financial institutions through the Salesforce Financial Services Cloud. This new mortgage-as-a-service model is a game-changer for the industry and for Rocket. More than simply leveraging our technologies, these banks and credit unions will have Rocket integrated into their centralized workflow. making the process seamless and simple. The opportunity is massive. In 2020, the approximately 10,000 banks and credit unions originated over $1 trillion in mortgages. That represents nearly a third of the total market in the U.S. We believe Mortgage as a Service represents a new model for financial institutions to partner with Rocket, paving the way for an even larger opportunity to provide consumer lending as a service. including mortgages auto loans and personal loans expect to hear more about this partnership in the first half of 2022 with multiple channels all operating at scale over a broad range of products we have many levers to drive growth while optimizing gain on sale margins even in shifting markets our ability to pivot and scale is rocket's key differentiator in fact in the third quarter we saw strong growth in our direct consumer channel where our purchase initiatives continue to gain traction. We will be allocating additional resources to further support this growth. More broadly, we've seen strength in products that aren't as interest rate sensitive. In the third quarter, both purchase and cash out refinancing hit new company records, rising approximately 70% year over year. This growth is a direct result of Rocket's commitment to providing speed, certainty, and choice to our clients. all of which are crucial in the ongoing inventory-constrained, highly competitive housing market. Not only did we set a record for purchase volume in the third quarter, with both our direct-to-consumer and partner channels achieving all-time highs, but by the end of September, we had already originated more purchase volume than any full year prior. This rapid growth in the purchase segment puts us well on our way to reaching our goal of becoming the number one retail purchase lender by 2023. Helping drive our continued growth in the purchase category is our seamless end-to-end home buying ecosystem in partnership with Rocket Homes. Through our integrated platform, clients can find their next house on Rocket Homes 50-state home listing search platform, secure an agent from the company's agent network, get financing through Rocket Mortgage, have AMROC conduct the title work and appraisal for them, and then after closing, have their mortgage serviced by Rocket Mortgage, all from one centralized platform. Other key drivers helping us win in today's purchase market are industry-leading products like our overnight underwrite and a broad range of home buying and selling services. For instance, Rocket Homes offers the choice to sell your home through its on-staff agents, its 50-state network of real estate professionals, or through its for-sale-by-owner platform. Additionally, we recently rolled out our Breaking Barriers program for our Rocket Pro TPO partners. These technology enhancements paired with programming to better connect real estate professionals and mortgage brokers are designed to give our partners the tools that they need to win today and well into the future. As we look ahead to the next year, we expect our Rocket Mortgage business to achieve continued market share growth, exceeding 10% share in a purchase heavy market. This is consistent with our track record of being opportunistic to grow share. For instance, in 2019, our company's mortgage originations accounted for roughly 6.5% of the market. In 2020, that grew to nearly 8.5%. With the fourth quarter guidance released earlier today, which Julie will walk through in more detail, we are well on pace to break 2020's strong origination record of $320 billion and end the year with 9.5% market share. As we look towards 2022, we will continue to invest in the rapid growth of our platform, delivering a unified client experience across mortgage, real estate, auto, personal loans, and solar. In our emerging businesses, we expect continued growth from Rocket Auto and Rocket Homes in 2022, on top of the records reached in 2021. We will also formally launch our solar program and continue to target new product categories to add to the Rocket platform, either organically or through acquisition. Our platform has been built to capitalize on the vast data, proprietary technology, trusted brand, and cloud force here at Rocket Companies. We find over decades these pillars of our platform are the foundation of our growth ahead. With that, I'll turn things over to Julie to go deeper into the numbers. Julie?
spk08: Thank you, Jay, and good afternoon, everyone. I'm pleased to report another quarter of strong financial results for Rocket Companies as we continue to leverage our flexible platform, grow our business at scale, and drive substantial profitability. On today's call, I will reference some longer-term comparisons, particularly looking at our 2021 performance on a two-year basis relative to 2019 level, given the unusual circumstances that shaped 2020. Now we'll get into the numbers. During the third quarter of 2021, Rocket Companies generated $3.2 billion of adjusted revenue, which is a 76% increase from Q3 2019. We had $1.6 billion of adjusted EBITDA in the quarter, more than doubling the results of Q3 2019, representing a 48% adjusted EBITDA margin. We delivered net income of $1.4 billion, up 181% from Q3 2019, and adjusted net income of $1.1 billion, exceeding Q3 of 2019 by more than two times. Over that same period, our adjusted net income margin was 36% and adjusted earnings per share was 57 cents for the quarter. Rocket Mortgage generated $88 billion of closed loan origination volume during the quarter, up nearly 120% from $40 billion in Q3 2019. Focusing on home purchase, our momentum has continued with Q3 purchase volume up more than 70% year over year, marking a new company record set in just the first nine months of the year. In fact, both our direct-to-consumer and partner network segments generated all-time highs for purchase volume during the quarter, with our higher margin direct-to-consumer business having the strongest gain. For the quarter, our rate lock gain on sale margin was 305 basis points, which was above the high end of our guidance range and substantially higher than most multi-channel mortgage originators. Day on sale margins improved quarter over quarter in both our direct-to-consumer and partner network segments. Our emerging businesses continue to reach new records. At Rocket Homes, we generated record real estate transaction value of $2.3 billion during the quarter, closing more than 9,000 transactions. Our rockethomes.com website continues to increase high intent traffic and was up nearly five times year over year with 2.4 million monthly average users during Q3. On a year-to-date basis, Rocket Auto's gross merchandise value, or GMV, has grown nearly two and a half times year over year as momentum for this business continues to grow as we expand inventory partners and with the launch of rocketauto.com. We are leveraging our platform and strong base of 2.5 million servicing clients as of the end of October to grow and ramp these emerging businesses. The Rocket Company's flywheel is based on leveraging our profitability advantages to constantly reinvest in our business, driving continued growth and strengthening our competitive position. We see tremendous potential to drive sustainable and profitable market share gains in our core mortgage business. We are also investing to grow beyond mortgage and leverage our platform to scale our newer real estate, auto, personal loans, and solar businesses. This growth will come from continued investment in the pillars of our platform, particularly technology. Fueled by our vast data lake aggregated through millions of client interactions, our technology drives speed and certainty to improve client experience, higher efficiency for our businesses, and opens the door to new market opportunities. For example, Amrock completed its one millionth digital closing in September, cementing its leadership position in the e-closing market. Amrock's digital experience makes the closing process easier, faster, and more accessible, translating to a better client experience overall. Cumulatively, our technology investments are driving meaningful change in our business. We expanded the rollout of RocketLogic, which can now be used by substantially all of our RocketCloud boards. On a year-over-year basis, our turn times improved by more than 33% this quarter, extending the gap between us and others in the industry. This was achieved while generating a similar level of business with a substantially higher mix of purchase transactions, which historically take longer to close. We're also leveraging our technology platform beyond our own four walls. As Jay mentioned, our recently announced Mortgage as a Service offering with Salesforce opens up a new opportunity for Rocket Mortgage to partner with medium and large-sized financial institutions that make up approximately a third of the mortgage market. Mortgage as a Service represents a large incremental opportunity for Rocket Mortgage to continue growing market share in the years ahead. Increasing the lifetime value of our clients is another core component to our growth strategy. Our business is profitable on the first transaction with the client. We then maintain ongoing loan servicing relationships with 2.5 million clients representing over $530 billion in outstanding loan principal as of the end of October. Mortgage servicing drives a recurring cash stream for Rocket companies of $1.3 billion on an annual basis. which covers nearly a quarter of our annualized expenses. More importantly, with service unpaid principal balance up 30% in the past 12 months and net retention above 90%, we are positioned to continue to drive additional clients to our platform across both our direct-to-consumer and partner network channels. In addition to generating our clients organically, we acquired MSRs with an aggregate unpaid principal balance of $3.6 billion during the third quarter. This is in accordance with our growth strategy, as we have found that our industry-leading retention rate positions us to generate attractive returns through select MSR portfolio acquisitions. We remain aggressive in pursuing this strategy and will continue to look for opportunities to deploy capital through these types of acquisitions. Looking ahead to Q4, the housing market remains active. Homeowners are sitting on the highest levels of home equity in history, and the investments we have been making are gaining traction across the platform, especially with the progress we're making in purchase. For the fourth quarter, we currently expect closed loan volume in the range of $75 billion to $80 billion, and rate lock volume between $71 billion and $78 billion. At the midpoint of our fourth quarter guided range, our full year 2021 closed loan origination volume would exceed $350 billion, exceeding the previous record of $320 billion achieved in 2020 by more than 10%. Rocket Mortgage has a long-term track record of consistent market share gains. We've grown market share from 1% in 2009 to nearly 8.5% in 2020, 9.5% in 2021 and expect to reach more than 10% in 2022. We expect fourth quarter day on sale margin to be in the range of 265 to 295 basis points. Regarding our expenses, we believe the run rate of operating expenses for the third quarter of 2021 is a good reference for the fourth quarter. Turning to our balance sheet, liquidity and capital allocation. We exited the third quarter with $2.2 billion of cash on the balance sheet and an additional $2.9 billion of corporate cash used to self-fund loan origination for total available cash of $5.1 billion. Total liquidity stood at $8.6 billion as of September 30th, including available cash plus undrawn lines of credit and undrawn MSR lines. Keep in mind, even with the record level of originations we generated in 2021, we need less than $1 billion of cash on hand to properly operate our business. Our business is capital light and our balance sheet is extremely strong. As we've said before, our capital priorities always start with proper capitalization and reinvesting in the business. With $5.1 billion of available cash, we have the opportunity to consider acquisitions, repurchase shares, and return capital to shareholders via dividends, as we've done in the past. For acquisitions, we look for bolt-on targets that would be additive to our platform by bringing new clients into our ecosystem, enhancing operational efficiencies, or enhancing our product offerings. During the third quarter, we increased the level at which we have bought back shares. Through the end of October, we have deployed $94 million to repurchase approximately 5.7 million shares. This is in addition to the special dividend of $1.11 per Class A common share funded by an equity distribution of $2.2 billion that was paid in March. In total, we have returned $2.3 billion to all classes of shareholders during the year. We will deploy our capital in a strategic and disciplined manner to generate long-term shareholder value. Before we turn the call back to the operator, I wanted to make you aware that we will be posting an investor presentation to the events and presentation section of our investor relations site by the end of the day. The investor presentation provides a general corporate overview of Rocket that we hope the investment community will find informative. Also, one small housekeeping item. Previously, we used the terms funded loan volume and funded loan gain on sale margin. Since loans are considered sold when they are purchased by investors on the secondary market, we felt the terms sold loan volume and sold loan gain on sale margin align more closely with the definition and are the terms that we will use going forward. There's no change to the metrics we are reporting, only a change in the terminology. With that, we are ready to turn it back to the operator for questions.
spk03: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Ryan Nash from Goldman Sachs. Please go ahead.
spk09: Hey, good evening, everyone.
spk02: Hey, Ryan. Can you hear us? Yeah, I just wanted to make sure I could hear you. Sorry about that. You mentioned the release. This is the strongest purchase long quarter for closings ever. Jay, you set out a goal to be the number one retail purchase originator by 2023. And I believe at that time, you said something like 60 billion was the largest in 2020. So she made me just talk about how the initiative is progressing. And of that goal to be greater than 10% of originations for the industry next year. How much of this can be, you know, in market share gains can come from purchase? And then just second, can you maybe just expand on the comment that you'll be allocating additional resources for this without being a form of buyer marketing, or is that on the personnel side? Thanks, and I have a follow-up. Okay. Well, good question here. Yeah, as I think both Julie and I referenced, Q3 was a record in both direct-to-consumer and our partner networks for purchase. And so... It was a strong purchase quarter in general, but for us to see those records is a great indicator of our growth in that area. We're excited about 2022 because if we kind of look at where industry experts are projecting, they're talking about a continued growth. I'm seeing forecasts 8 plus percent. We're seeing median home prices estimated to be north of $435,000. As home prices grow, of course, mortgage amounts grow. And you understand how our business works. That is great for the unit economics of our business. More revenue generated on the same units that we're putting through the system. So just in general, the industry looks very strong. Now, speaking specifically to us, Our full purchase ecosystem continues to grow. Our Rocket Homes platform, the home search experience, the number of visitors reaching that site is growing. Our agent network base is growing. Our centralized agent network system is growing. The way that we're integrating home financing, the Rocket Mortgage component into all these experiences is strengthening. The way that we're integrating title and settlement services. So we've been leaning in all of these categories to make sure that not only do we provide an incredible experience, but we're able to make sure we're monetizing that experience as well. In particular with real estate agents, We've rolled out our single point of contact process and the life of the loan, which is really important to them. We've given real estate agents tracking for appraisal and title work, which is very important to them. I think we're north of 55,000 agents now that are in our network. And so all of these components are working. And then if you watch some of the advertising that we do, you'll notice that there's been a shift there, driving purchase as well as cash out refinance. All of the levers, and we've talked about this for call after call now, we're very fortunate that we've got so many distribution levers to pull. But in all those categories, we've just been leaning in to drive the purchase messaging, and that's giving us that growth. And then, of course, add on top of it, the strength that we're seeing in TPO, and then this partnership that we're launching with Salesforce to reach nearly 10,000 banks or credit unions, that will give us additional reach into the purchase market. So I just think Q3 is a great indicator of all the efforts that we're putting forward that we expect to continue moving forward. Got it. Thanks for all the color there. And Jay, you mentioned again the partnership with Salesforce. Can we maybe just expand on this mortgage as a service? How is it going to work? What will the economics look like relative to the, you know, more traditional mortgage business? And I think you mentioned, you know, these companies originated a trillion dollars in mortgage. What would be a successful penetration rate for Rocket and over what time frame as you penetrate this partnership? Thanks. Yeah, this is a great addition to our partnership network. So as you know, we've got these premier enterprise partners that we've been adding to our base. We started with Schwab that represents billions of dollars of closed loans for us on a yearly basis. We've got our API integrations with Mint and that platform, Credit Karma. But this is a new way for us to broaden that reach. And that's really, as you talked about, mortgage as a service to banks and credit unions. And if you look at these financial institutions, many of which are already using the Salesforce Financial Services Cloud, we're adding a rocket technology to the CRM 360 view technology that they're already using. It's hard for these financial institutions on their own to make the level of investment required to really be great at mortgage. And so they've got the relationships. They want to retain the relationships. They want to protect all the other ways that they interact with these clients. and we know mortgage is a critical way to do this, now we're giving them access to our brand, our tech, and that allows them to bring a great experience and allows us to gain that client that maybe otherwise would have worked with the bank or the credit union. As you referenced, that's a trillion dollars or so worth of mortgage volume, and if home price increases continue as they're scheduled to, that will be growing. When it comes to the economics, and how we're going to really kind of penetrate this market. Again, we're very fortunate because we're gonna be working with Salesforce. And as a Salesforce client for many years, can tell you that their sales force is incredible uh and so they have great relationships with these financial institutions they will be out uh as banks and credit unions think about either renewing contracts or adding uh salesforce financial services cloud to their platform and we will be there in partnership with them now explaining this new feature that makes the the cloud platform even stronger and so it's really two great sales forces no pun intended, teaming up to reach these banks and credit unions. So, you know, on our own, I'm pretty confident in our business development team, but now combining with the Salesforce business development group, I think is very, very exciting. And then we are able to share the economics on the gain on sale with the banks and credit unions. And it's very similar to some of the other economics we've talked about in the past with these premier enterprise partners that we've already got on the platform. So, you know, really good economics for us. Great. Appreciate all the call, Jay. Yeah.
spk03: The next question comes from Doug Harder from Credit Suisse. Please go ahead.
spk12: Thanks. I was hoping you could touch a little bit more about on your liquidity, you know, obviously quite strong and well above the billion you said you needed. I guess, can you just talk about how you think about the timing of potentially additional dividends or you know, or other returns of capital beyond the share repurchase you've done? Yeah, I'll have Julie fill that one.
spk08: Yeah, absolutely. You know, as we continue to evaluate the amount of capital we have in the business, we do have quite a lot of capital, as you mentioned. You know, we did a distribution earlier this year, and we'll continue to think about that from time to time. So it may be something that we evaluate the capital levels that we've got and believe that we've got more than we need to continue to invest in the business, consider additional acquisition opportunities and all the things that we think are are there for us to invest our capital in, and from time to time we may do that. The share repurchase program is something else that we have been active in as well and will continue to consider as well, but it's really going to kind of depend on how we assess the level of capital as we go forward into the next year.
spk02: Maybe just to add on to that a bit, We've touched on this, you know, being strategic about the acquisitions that we might look at. As the market is shifting and changing, I think that presents increased opportunity for us there to be thoughtful but more aggressive in our approach. And I'd also say that, as Julie referenced, if we look at where the stock has been here recently, you've noticed our buybacks have increased and, you know, we're We think the stock is smart for us to do buybacks when we see the stock at that level.
spk12: And then you mentioned that, you know, cash out refinances have been quite strong and record levels for you. You know, I guess, how do you think about the opportunity in, you know, in home equity loans or home equity interests or other ways to kind of help your customers kind of tap into that home equity as an opportunity?
spk02: Yeah, great question. I think if we look back about 24 months, there was somewhere just north of about $19 trillion of home equity in the country. Recently, that number that we've seen, I think at the end of the second quarter, was $24 trillion. So a huge increase in home equity. We referenced the home equity increases inside of our own servicing book. Of course, our retention rates there are excellent. And so the first approach with interest rates the way that they're at is to make sure that we are messaging with marketing and branding and digital advertising, performance marketing, to continue to see increasing cash-out transactions. It makes a lot of sense for our client base to be vigilant when we look at ways we can assist our servicing book to help those clients with cash-out. Many of those clients will reach out to us thinking about purchasing, but with a with I think about two, two and a half maybe months worth of inventory out there. In many cases, that conversation changes from buying a new home to renovating their existing home, another opportunity for us to assist them with cash out. And then of course, we've got Rocket Loans. And we talked a lot recently about Rocket Loans and how we're leveraging that technology as we expand solar. But the primary purpose of initially rolling out Rocket Loans was to deliver a 24 to 48 hour experience for our client base to tap into available money that's not a home equity line, product today, but it just speaks to how we're able to leverage that technology in the future. We've pivoted it to use the same technology for solar, and we have the opportunity to take that same technology speed and certainty that we could bring to the table for home equity lines or those sorts of things in the future if we think that that's advantageous. Right now, a cash-out refinance really is the product that makes the most sense for our client base.
spk12: Great. Thank you, Jay.
spk03: Yep. In the interest of time, please limit yourself to one question. Our next question comes from Aaron Saganovich from Citi. Please go ahead.
spk10: Thanks. If somebody could talk a little bit about the competitive dynamics you're seeing in your TPO or broker segment, the gain on sale declined to a fairly low level there. Just talk about the dynamics that are happening there.
spk02: Yeah, when we look at our TPO business, if we go back about four or five months, we had about 36% wallet share. So of the partners that we were working with, we were getting just north of one out of every three loans that they originated. If we now look where we were in the third quarter, that's north of 50%. So we're really excited about how those partners are committing to working with Rocket. In addition, when we look at just overall market share, we're up two or three percentage points from where we were here just a few months back or a few quarters back, I should say. So our growth in that market continues. We just recently announced our most recent offering to our partner base here. We've launched our new client portal. uh many enhancements that they've been asking for uh we launched our broker connect program so we're introducing our broker partners to our real estate partners so they can continue to develop business together across the united states of america we rolled out rocket connect to all of our brokers, a streamlined way for them to communicate directly with our operations folks, guaranteeing a two-hour or less turn time, which we think is leading in the industry. So as you can tell, we are fully committed to making sure that we're the premier provider of these services to our TPO partners. And that's really, again, if we go back to the platform, We talked in our prepared remarks about how we're leaning into direct-to-consumer because we have that ability to market the cash out refinance, market the purchase, and grow there. But I think we're also uniquely positioned to continue in the TPO business because of how well diversified our entire business is. And so I really look at that as an opportunity as it becomes more challenging for more model line mortgage businesses to do that, an opportunity for us to continue to invest win over the broker community, increase wallet share, and set ourselves up for even more profitable business here in the future. So we're full steam ahead in that business, very happy with the partners we've got and how the business is performing. And, again, we always take a long view as we build these things and nothing different with our TPO partners here.
spk03: Great. Thank you.
spk11: Yeah. Yeah.
spk03: Our next question comes from James Fawcett from Morgan Stanley. Please go ahead.
spk04: Thanks. I want to follow up quickly on specifically the gain on sale aspect is that this quarter, or that is the September quarter, is better than it had been in the June quarter and certainly better than had been modeled. But your outlook seems to imply that it should come back in the December quarter. Can you talk a little bit about kind of specifically the dynamics that you see moving that around, and maybe more importantly, where do you see that kind of stabilizing if and when as we go into 2022? Thanks.
spk08: Yeah, sure, I can take that question. And, you know, as we look at our gain on sale margin in the third quarter, it was 305 basis points, which was up 27 basis points from the Q2 margin of 278 basis points. As you mentioned, our margin was also five basis points above the top end of our guided range. And the largest driver of that outperformance in the third quarter was due to the FHFA's removal of the 50 basis point adverse market fee So that had about a 10 basis point impact on the margin, and that is part of the reason when we look at margins heading into Q4, we're seeing them lower than Q3. There's always going to be appearances in margin from quarter to quarter, and we saw just a bit of compression in the primary and secondary spread in October compared to last quarter. But based on what we're seeing today and taking into account everything we know so far this quarter, we're seeing margins a bit lower than Q3 right now, but we do feel good about the where we are guiding for this quarter, which is 265 to 295 basis points. And that guidance is fairly consistent with where we've been for the past couple of quarters as well. You know, as Jay mentioned, we've seen records in our cash-out and purchase transactions, and the equity continues to grow that homeowners have. We continue to grow our market share and are looking to continue to do that into next year as well.
spk04: Great. Thank you.
spk08: Yep.
spk03: The next question comes from Brock Vandervliet from UBS. Please go ahead.
spk13: Oh, great. Thanks for the question. Just in general, Jay, I feel like, you know, investors in the space are kind of collectively holding their breath, seeing, you know, both current performance, which is very good, but also worried about what next year may bring, looking at things like the NBA forecast and such. How should we feel about next year in terms of things like Salesforce, the cash-out refi opportunity provide you? you know, real shock absorbers where the volume forecast that we see from some of these macro providers is really irrelevant because you can kind of make up the difference? Or is that something we should really be focused on because, you know, it's a big market and you're a big player and you're going to kind of move with the broader market? How should we think about that?
spk02: Yeah, you're touching on our life's work here at Rocket Companies. So when I started 26 years ago, I was very aware of market conditions and market changes and how that could impact a mortgage company's volume. And so we have, especially over the last 10 years, been incredibly focused on diversifying and controlling the outcome of our business. We started with building an incredibly strong brand and incredibly strong marketing team, over 300 people now, very focused on digital and performance marketing. As you know, we invest over a billion dollars a year there through our direct to consumer space. When you think about an increase of $5 trillion in equity, And you also think about our ability to do cash-out transactions. I think we've touched on in the past between cash-out and purchase how we're well north of 50% of our overall origination volume. I think we excel in that area. So I look at that as a massive opportunity going into 2022. The growth of our purchase segment, setting records in Q3, certainly in Q4 because of timing and the holidays. Someone being interested in a purchase and actually closing on a home can vary a bit. But when I think longer term, going into Q1 and Q2 and all of 2022, as they're talking about continued increase in home value and demand with purchase, I feel very good about that. And so the market may shrink a bit, it may not, I think it's hard to say, but what I know is that between all of these categories, the sales force, the partnerships, all the things that we're investing in TPO, the direct consumer, our business has the ability to pivot and shift, maximizing the capacity that we've built, bringing great experience to our client, and that's our mission. Our mission is to continue to build out a platform where we guide the growth of the organization. So the last thing I'll say is market share. That's why we're projecting to go north of 10% market share. We've consistently been growing market share regardless of the size of the pie through all of these vehicles I've just discussed, and that's what we anticipate that we'll do in 2022. Okay. And
spk13: And as a follow-up, if you could just kind of describe the ground game now in terms of the partner network specifically. You're growing that network. How are the competitive dynamics there as you seek to add more weight?
spk02: Well, when you think about the ability for our partners to tie into the digital experiences we create, the APIs that we've created, the financial institutions like a Morgan Stanley or a Charles Schwab or a MassMutual, I really feel strongly that if a financial institution wants to partner with someone that can deliver incredible client service and has a highly respected brand, we are the choice for them, really the only choice for them. And so that partner business, will continue to serve us very, very well. When you think about our broker partners, we're bringing incredible value to them. We've got our folks traveling the country now, setting up these connects, aligning the real estate agent partners we've got with the broker partners, strengthening their relationships there. We've got the technology to ensure that our brokers can perform. We've got the brand that they can leverage. we're really turning all of the assets of this organization and offering them to anyone that would like to partner, whether it be a bank, a credit union, an insurance agent, a financial planner, a mortgage broker. And so that partner channel is one of the main components of the future of our business. And so it's exciting to see its growth, and I imagine its growth will continue.
spk13: Got it. Okay. Thanks for the questions.
spk03: Our next question comes from Ivy Zellman from Zellman & Associates. Please go ahead.
spk01: Thanks, guys, for taking my questions, and nice quarter. When you look at the partner business and just overall the continued growth outside of mortgage and assumingly purchase and thinking about the cyclicality of those businesses, you know, if you had your crystal ball day and you think about five years from now, taking arguably businesses that are less cyclical, can you see the majority of earnings being more likely to come from the non-mortgage-related business? Is that sort of over time? I know that's what you've been attempting to do, but is there a way to quantify that for us? And then just a follow-up is, what's your basis or definition of market share? What are you using for determining your 10% that you expect to realize
spk02: Well, to think about your first question, and I think it starts with servicing, because I think a lot of people will view servicing as this asset and what would its value be if you were to sell it. When we think about servicing, we think about the reoccurring payments that we receive on a monthly basis. As we strengthen the relationship and market to that client, and then are able to offer additional services to the client. And so mortgage for a pretty significant portion of time, I'm not going to speculate how many months or years, but it'll still represent a big chunk of our revenue, of course, because there's not that many products out there that give you the opportunity to generate six or seven or $8,000 per unit. But when Julie talks about the growth, I'm not aware of another real estate or auto sales organization that's growing at the rate that we're growing. And I think that speaks to the scalability of the platform. I think it speaks to the brand and how consumers, once they're with Rocket, really value the relationship. And so we'll continue to see those businesses grow. I guess any... Everyone will have to make their own determination as to what is a meaningful percentage of revenue. Is that 5% of revenue? Is that 10% of revenue? Our mission, though, is to continue to add these services and allow the lifetime value of the client and the reoccurring revenue of that client over an extended period of time to really be the measure. When I talk to the company, we don't talk anymore. Of course, we're looking at units closed and volume, but what we're really talking about are the number of users on our platform. How many millions of people do we talk to each month? How many millions of people do we have on the servicing platform? And that's a shift, I think, from the traditional mortgage industry. But you've got to make that shift because that's really how we're thinking about it. If we have the ability to reach 5, 10, 15, 20 million Americans a year and understand their finances, understand their credit, understand their property, then you start thinking about the power of that relationship and that becomes more meaningful over the long run than a closed loan. And so that's the lens that we're really starting to view our business through is how many users that we're putting on the platform. But in regards to your other question about when we think about market share, I'll turn to Julie here, but I think we look at the overall closed loan
spk08: market and divide our the closings we have into that yeah historically we have i've looked at the nba market share but as we look forward we're talking about whatever the market is that you know we're seeing in 2022 we expect to be 10 of that so it's something that historically that's the way that we have looked at at the numbers that we've reported when we're talking about market share but it's not specific going forward to a particular market. We don't know what that's going to be.
spk02: Yeah, Ivy, you know there are many different indexes out there, and so we'll look at MBA. You publish numbers as well, and so it varies a bit depending on who's putting out the numbers.
spk08: based on what we have done over the past several years here and continuing into that growth is what's going to, we believe, drive that.
spk02: Yeah, yeah. I think when we talk about 10% or north, I believe we're kind of looking at where the NBA is looking for 2022 and where we'll be at.
spk01: Got it. Well, thank you very much, and good luck, guys.
spk03: Thank you. Sorry. The next question comes from Mark DeVries from Barclays. Please go ahead.
spk05: Thanks. I had a question about expenses. Julie, if I heard you right, I think you indicated 4Q or the 3Q run rate was a good indication of what we should expect with 4Q. I think you're guiding down, though, for a sequential quarter decline in your closed loan volume. Is there anything from an investment perspective or anything else worth calling out that's going to keep expenses at the 3Q level?
spk08: yeah yeah thanks for that question it's a good question and we do expect that expenses in q4 will be similar to what we saw in q3 we do think that's a good run rate for forecasting and estimating next quarter our production expenses will be down a bit this quarter that's offset by a few things uh uh mers is as uh increased expenses uh on the industry for example so that will offset some of those decreases but some of the other things that happen in q4 are six thousand bankers that we have we license them uh during the fourth quarter every year so that cost is going to hit in the fourth quarter we'll have additional bond interest expenses compared to the prior quarter because we did issue new bonds at the beginning of october this year so that will impact q4 we might see a slight increase in the performance marketing this quarter james mentioned that also the headcount that we added last quarter in q3 will have a four uh full of expenses here in the fourth quarter as well, so that's going to contribute to a slight increase. That's right.
spk02: And, Julie, this just in, because we're doing this live, to answer Ivy's question, we take Fannie, Freddie, MBA, and her, and we average those to kind of think of what the overall market is.
spk08: As we look forward.
spk02: And then we're talking about 10% on that average.
spk05: Yeah. Okay, thank you.
spk03: The next question comes from Mihir Bhatia from Bank of America. Please go ahead.
spk14: Hi. Thank you for taking my question. I just wanted to go back to the sales force discussion for a second. Maybe just talk about that a little bit more. Really what I'm trying to understand is, you know, who are you competing with there? What is it, you know, like it sounds like you're going to be sharing, again, on sales revenue. So it sounds like more like, you know, what you have in your portfolio. Is that the right way of thinking of it? You're effectively white labeling your technology. For those people through the Salesforce Cloud, Just trying to understand a little bit more on this.
spk02: Yeah, well, so good question here. Some of these financial institutions currently have their own small mortgage origination capabilities. Some don't participate in mortgage at all right now. But we're really plugging directly into the Salesforce Financial Services cloud. So if you think about an originator at a bank or credit union, and they're using that to understand their client base, work with their client base. The data about that client is in that CRM system. They'll now have access to tap in directly to Rocket. It won't be white-labeled. We're using our brand. Again, we've invested billions and millions of dollars and created an incredible client experience. So people want that brand. They want to be able to say to their consumer, hey, look, you're actually able to get a Rocket Mortgage with my help. In some cases, the bank may continue to have a licensed originator who's performing some of those duties. In other cases, we may provide some assistance there and also have a licensed originator and our end support theirs. So we're able to pivot a bit based on how much the bank wants to be doing and And then, of course, our technology, our services, you know, all those things will process underwrite and close the loan. And when I talk about partnership, and Julie's talked about this in the past, I would really think of this similar to like a Charles Schwab or – some of the other what we call premier partners that we've got, a mint. And I know Julie's referenced that these are more similar to our retail margins from that perspective.
spk14: Understood. Thank you. If I could just ask a quick follow-up on the New York legislation on CRA requirements applying to non-banks. Would that have any impact on your business? Maybe just talk about that. Thank you.
spk02: Well, let's turn it over to Bob Walter, who happens to be here with us as our chief operating officer and also an expert in capital markets.
spk11: I think the answer to that is no. I don't think that that's going to have any substantial impact on the business. Thank you.
spk03: The next question comes from Kevin Barker from Piper Sandler. Please go ahead.
spk00: Good afternoon. Thanks for taking my questions. Just a follow-up on some of the Salesforce comments. Can you give us an idea of what your target institution would utilize this type of product, whether it's the size of the bank or the credit union? And then, do you see the potential for some of this offering to potentially maybe cause some incremental cannibalization? but ultimately maybe further growth over time. I'm just trying to understand the dynamics between offering your service to institutions that already provide origination capacity to their customer base.
spk02: Yeah, well, in that situation, obviously, we'll be gaining clients that currently don't work with us. There's always a little bit of segment overlap, but as we study the market – the consumer that comes to us directly online is a different consumer than the person who chooses to work with a local mortgage broker, who's typically a different consumer who chooses to work with their bank or credit union. So this gives us access to a consumer that we may not be reaching day in and day out. So it's really additive from that respect. I also think it's important, we're starting with mortgage here, but as we think about building out our platform, There are other services that financial institutions have already signaled that they may have additional interest in. Very rarely we go to your bank or credit union and learn that they're thinking about helping their clients green their home with solar. And so this is a way for us to help them strengthen their relationship with their client base, but also a starting place for us that could possibly expand into other products and services here in the future.
spk00: Okay, great. And then just to follow up, is this purely fee revenue that will be generated, or will you be utilizing your balance sheet at all in providing these services?
spk02: Go ahead, Julie.
spk08: Yeah, we will look to do this in the same way that we originate with our partners today. So it will be financed with either our own cash or our own funds as we do the rest of our business and sold into the secondary market.
spk00: Correct.
spk03: Thank you for taking my question.
spk08: Yes.
spk03: The next question comes from Ryan Carr from Jefferies. Please go ahead.
spk09: Hey, good afternoon, guys, and congratulations on the great results this quarter. You've done a great job leveraging the broad platform and ecosystem to enhance the flywheel effect and expand your purchase capabilities, particularly on Rocket Homes and your iBuying program. I'm curious to hear about how this combined with your other service offerings has helped to bolster your leadership and purchase, particularly this quarter, and And then given the recent incidents with Zillow, how do you plan to continue to take advantage of the dislocation?
spk02: Yeah, very good question. So our mission here with Rocket Homes and with forsalebyowner.com and with our centralized realtor group and our network of real estate agents is really to make sure that we have an offering for anyone who's thinking about buying or selling a home. that approach really gives us the ability to help all of the clients that may be reaching out to us. One of the components that we've added here recently, as we touched on, I think, on our last earnings call, we were just starting to do some testing, is iBuyer. And for us, the iBuyer program in particular will allow a client – who may otherwise have a contingency on their approval, meaning they have to sell their existing home before they buy their next home, to remove that contingency. And that's important in a competitive marketplace because if you're going up against somebody who doesn't have a sale contingency, or is paying cash, then you need that flexibility. Our decision, as you know, with iBuying was to partner with actual iBuyers. So as Julie's talked about all the time, we have a very capital-light structure here, which means that we're not in the business of purchasing real estate. And so the model that we have built is to start bringing on multiple iBuyers who seem to have expertise in certain areas across the country, provide that as a service, one of many to our clients, if that will help them buy their new home, and then allow that third party to actually be there if they do require iBuying. In many cases, actually, what we're finding is that someone uses that as a backup plan, but quite honestly, lists their home through one of the many ways that I've just described on Rocket Homes and actually sells the home before needing to close on the other home. So it's a nice thing to have as a backstop, but in today's real estate market, it's not something that's required much of the time.
spk09: Got it. Thank you. And follow up the rocket auto is now online. How's the rollout been so far? And what are the early signs of potential cross sell opportunities you've identified with the with the rollout in place?
spk02: Well, I think we probably touched on this here on a few different calls. Um, as we continue to help our clients understand their finances, help them save money. We're having discussions about their largest bills. And, of course, the auto comes up. And so the vast data lake that we've got here, along with a servicing platform that allows us to communicate with the clients on a monthly basis, really gives us the opportunity to start creating a very high-quality auto lead that we can then use to support Rocket Auto. A bit different than maybe the type of lead you could think of that would be generated from an autotrader.com or a cars.com or something of that nature. We've already got the relationship with the client. We've also got a significant amount of data. And as we see, and We'll figure out if it's the second part of 2022 or as we get into 2023, it's hard to say. But eventually, there'll be more inventory that is out there. And as there's more inventory on dealer lots, I think we'll see even increased desire from our dealer partners to have us assist in driving sales. Julie touched on the growth that we've seen from Rocket Auto this year in what I would argue might be one of the most challenging years for this business because it's very rare that you would go to a dealer today and ask them if they're having trouble selling cars. Yet they're calling us and wanting to jump on our platform in a more normalized market where they can use that additional support. We get even more excited about the opportunity for that business to continue to grow.
spk09: Thanks very much and congrats again on the great quarter.
spk03: Thank you. This concludes our question and answer session. I would like to turn the conference back over to Jay Farner for any closing remarks.
spk02: Well, thank you, everyone, for joining the call here today. As I started out the call, couldn't be prouder of our entire team and the incredible work that they have done through the first three quarters of this year. And we're excited about finishing up 2021 and heading on to 2022, where we will work hard to go 10% or north of market share and keep growing out our entire platform. And we'll see you on the next call. Thank you.
spk03: Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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